Estate duty charge on gifted property
Property disposed of by way of gift made within three years of the death of the donor shall be treated as the donor's assets for the purpose of estate duty assessment. According to Section 18 of the Estate Duty Ordinance (Cap. 111), a rateable part of the estate duty on an estate, in proportion to the value of any property which does not pass to the personal representative as such, shall be a first charge on the property in respect of which estate duty is leviable. Thus a gift of property made within three years of the donor's death may be subject to an estate duty charge under Section 18 of the Estate Duty Ordinance.
If the donor is still alive three years after the deed of gift of the property and the donee intends to sell the property, the donee (vendor) may be required to provide proof to the purchaser, such as a statutory declaration from the donor, confirming that the donor is still alive.
If the donor is still alive and the donee contracts to sell the property within three years of the deed of gift, the fact that there may be a latent charge on the property for payment of estate duty may render the title defeasible. It was held in Chan Fung Lan v Lai Wai Chuen  CPR520 that the purchaser was not bound to accept the vendor's offer of an indemnity by way of retention of portion of the sale proceeds as proof of good title.
The law relating to a deed of gift is complicated. If there is a previous deed of gift shown registered in the land register with respect of a property, an estate agent should advise his clients to seek legal advice before entering into any provisional agreement for sale and purchase.
(Note: In respect of any person dying on or after 11 February 2006, no estate duty is payable.)